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Assessing Market Power in the Italian Electricity Market: A synthetic supply approach

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  • Rossetto, F.
  • Grossi, L.
  • Pollitt, M.

Abstract

The aim of this article is to investigate the effects of the bidding strategies of leading firms on market equilibria. The analysis focuses on the Italian wholesale electricity market from 2015 to 2018. The purpose is to assess if the observed market equilibria are the results of a competitive setting or if more competitive equilibria could have occurred. We use the methodology of synthetic supply proposed by Ciarreta et al. (2010a). This way, a new set of synthetic prices and quantities is computed. The comparison between the actual and synthetic prices allows us to assess the effects of market power on the actual equilibria. Results suggest that whilst there is a significant impact on prices, quantities seem not to be affected, due to the inelastic demand. Moreover, our findings suggest that the main impacts occurred during 2017 especially during those months where above average heating and cooling were required.

Suggested Citation

  • Rossetto, F. & Grossi, L. & Pollitt, M., 2019. "Assessing Market Power in the Italian Electricity Market: A synthetic supply approach," Cambridge Working Papers in Economics 1975, Faculty of Economics, University of Cambridge.
    • Handle: RePEc:cam:camdae:1975
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    References listed on IDEAS

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    1. Bosco, Bruno & Parisio, Lucia & Pelagatti, Matteo, 2013. "Price-capping in partially monopolistic electricity markets with an application to Italy," Energy Policy, Elsevier, vol. 54(C), pages 257-266.
    2. Aitor Ciarreta & María Espinosa, 2010. "Market power in the Spanish electricity auction," Journal of Regulatory Economics, Springer, vol. 37(1), pages 42-69, February.
    3. Ciarreta, Aitor & Espinosa, Maria Paz & Pizarro-Irizar, Cristina, 2017. "Has renewable energy induced competitive behavior in the Spanish electricity market?," Energy Policy, Elsevier, vol. 104(C), pages 171-182.
    4. Simona Bigerna, Carlo Andrea Bollino and Paolo Polinori, 2016. "Renewable Energy and Market Power in the Italian Electricity Market," The Energy Journal, International Association for Energy Economics, vol. 0(Bollino-M).
    5. Andrew Sweeting, 2007. "Market Power In The England And Wales Wholesale Electricity Market 1995-2000," Economic Journal, Royal Economic Society, vol. 117(520), pages 654-685, April.
    6. Aitor Ciarreta & María Espinosa, 2010. "Market power in the Spanish electricity auction," Journal of Regulatory Economics, Springer, vol. 37(1), pages 42-69, February.
    7. Aitor Ciarreta & Maria Paz Espinosa, 2010. "Supply Function Competition in the Spanish Wholesale Electricity Market," The Energy Journal, International Association for Energy Economics, vol. 0(Number 4), pages 137-158.
    8. Bosco, Bruno & Parisio, Lucia & Pelagatti, Matteo, 2012. "Strategic bidding in vertically integrated power markets with an application to the Italian electricity auctions," Energy Economics, Elsevier, vol. 34(6), pages 2046-2057.
    9. Genc, Talat S., 2016. "Measuring demand responses to wholesale electricity prices using market power indices," Energy Economics, Elsevier, vol. 56(C), pages 247-260.
    10. Frank A. Wolak, 2003. "Measuring Unilateral Market Power in Wholesale Electricity Markets: The California Market, 1998–2000," American Economic Review, American Economic Association, vol. 93(2), pages 425-430, May.
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    Cited by:

    1. Bigerna, Simona & Bollino, Carlo Andrea & D'Errico, Maria Chiara & Polinori, Paolo, 2022. "COVID-19 lockdown and market power in the Italian electricity market," Energy Policy, Elsevier, vol. 161(C).
    2. Savelli, Iacopo & Morstyn, Thomas, 2021. "Electricity prices and tariffs to keep everyone happy: A framework for fixed and nodal prices coexistence in distribution grids with optimal tariffs for investment cost recovery," Omega, Elsevier, vol. 103(C).

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    More about this item

    Keywords

    Electricity Wholesale Market; Market Power; Bidding Strategy; Synthetic Supply;
    All these keywords.

    JEL classification:

    • L94 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Electric Utilities

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